Retirement savings locked in global pension funds hit a n all-time high – but the average return on investment was less than zero.
Pension funds in the 34 Organisation of Economic Co-operation and Development countries totalled US$20.1 trillion in 2011, while weak equity markets and low interest rates returned poor investment performance.
The average negative return was -1.7%, says the OECD’s report Pension Markets In Focus.
Retirement savers enjoying the best performing pension funds came lived in Denmark, where returns averaged 12.1%, the Netherlands (8.2%), Australia (4.1%) and Iceland (2.3%), while those in Spain, the United States, Italy and Japan had negative returns ranging from -2.2% to -3.6%.
Investors in seven countries, including Finland, Greece, Austria and Poland, saw their pension pots dwindle by worse than -4% in real terms.
Equities return record low
By December 2011, OECD pension fund assets amounted to 72.4% of gross domestic product on average, up from 67.3% in 2001.
The Netherlands had the largest ratio, at 138% of GDP, followed by Iceland (128.7%), Australia (92.8%) and the United Kingdom (88.2%).
The United States had the largest market, with assets worth US$10.6 trillion, but the US share has dropped from 67.3% in 2001 to 53.2% in 2011.
Other countries with large shares include the UK, with assets worth US$2.1 trillion and a 10.7% share; Japan, US$1.5 trillion and 7.4%; and Australia, US$1.3 trillion and 6.7 %.
The level of stocks and other equities in portfolios decreased to a historical low in 2011, the report discloses.
Risky funds shifted
Australia had the highest level of equities at 49.7%. The only other countries where equities outweigh bonds are the US (26.0% in bonds to 48.1% in equities) and Finland (35.4% in bonds to 41.3% in equities).
Many funds shifted their geographical allocation to reduce exposure to countries deemed to be risky, notably in Chile, Denmark, Netherlands and the Slovak Republic.
The global financial crisis also led many fund managers to reconsider alternative investments, like hedge funds and private equity, and to strengthen their governance and risk controls.
“Looking ahead, funds need to find solutions to shortfalls in funding through more transparent investment disclosure, better understanding and confidence on the part of pension fiduciaries, and more consistent performance measurement,” said the OECD report.
Read the full report here www.oecd.org/daf/financialmarketsinsuranceandpensions/privatepensions/PensionMarketsInFocus2012.pdf